Treasury Issues Proposed Regulations on Low-Income Communities Bonus
On May 31, 2023, the Department of the Treasury (the “Treasury”) and the Internal Revenue Service (the “Service”) issued Proposed Treasury Regulations 110412-23 (the “Proposed Regulations”), providing additional guidance on the “Low-Income Communities Bonus” available under section 48(e) of the Internal Revenue Code of 1986, as amended (the “Code”), for eligible wind, solar, and storage projects.1 The Proposed Regulations supplement Notice 2023-17, issued on February 13, 2023, which established the Low-Income Communities Bonus allocation program. Our prior coverage of Notice 2023-17 can be found here, and our prior coverage of the Inflation Reduction Act of 2022 can be found here and here.
The Proposed Regulations clarify the definition of key terms, including (i) “in connection with” as used in determining whether energy storage technology may be treated as part of a qualified facility, (ii) “financial benefits” and “electricity acquired at a below-market rate” that qualifying projects need to provide in order to qualify for the 20% Low-Income Communities Bonus, and (iii) what it means for a project to be “located in” a low-income community or on tribal land. Additionally, in order to prevent large projects from qualifying for the Low-Income Communities Bonus by separating into multiple facilities, the Proposed Regulations define the scope of a “qualified solar and wind facility” based on the “single project factors” used in Treasury guidance previously promulgated for the “beginning of construction” rules.
Whereas Notice 2023-17 provided that the Treasury would take applications for 2023 allocations in a phased approach, the Proposed Regulations clarify there would be an initial application window followed by a rolling application process for any unused capacity limit. Moreover, the Proposed Regulations clarify that, with respect to the 700 megawatts of 2023 capacity reserved for projects in low-income communities, 560 megawatts will be allocated to residential behind the meter facilities (e.g., rooftop solar) and 140 megawatts will be available for non-residential facilities and front-of-the-meter facilities.
Furthermore, the Proposed Regulations provide additional information on the application process, including application materials demonstrating facility viability, documentation and attestations to be submitted when a qualifying facility is placed in service, and post-allocation compliance (including recapture of the Low-Income Communities Bonus).2
1 Also on May 31, 2023, the Treasury and the Service issued Notice 2023-44 with respect to the Code section 48C(e)(1) Advanced Energy Project Credit. Our coverage of Notice 2023-44 can be found here.
2 The Treasury and the Service request comments about whether the definitions and requirements in the Proposed Regulations should apply to subsequent years in addition to 2023. Comments are due June 30, 2023.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.